Proliance International, Inc. Reports Second Quarter 2005 Results
NEW HAVEN, Conn.--Aug. 1, 20051, 2005--Proliance International, Inc. (AMEX:PLI), formerly Transpro, Inc., today announced results for the second quarter ended June 30, 2005.Net sales in the second quarter of 2005 were $59.0 million, compared to $60.4 million in the second quarter of 2004, down 2.4% from last year.
The Company reported a loss from continuing operations of $2.1 million, or $0.30 per basic and diluted share, in the second quarter of 2005, compared to a loss from continuing operations of $0.2 million, or $0.03 per basic and diluted share, in the second quarter of 2004. The Company reported a consolidated net loss for the second quarter of 2005 of $2.1 million, or $0.30 per basic and diluted share. In the second quarter of 2004, including income from discontinued operation of $1.0 million, or $0.14 per basic and diluted share, the Company reported net income of $0.8 million or $0.11 per basic and diluted share.
On July 22, 2005, as previously announced, the Company successfully completed its merger with the aftermarket business of Modine Manufacturing Company and changed its name to Proliance International, Inc. The financial results discussed herein reflect the performance of Transpro, Inc. through June 30, 2005, while the post-merger results will be reported commencing in the third quarter of 2005.
In addition, the Company, as previously announced, completed the sale of its Heavy Duty OEM business on March 1, 2005. The statements of operations and related financial statement disclosures for all periods prior to the sale have been restated to present the Heavy Duty OEM business as a discontinued operation. The discussions and analyses herein are of continuing operations, unless otherwise noted.
Charles E. Johnson, President and CEO, stated, "Our results in the second quarter were sharply impacted by the late arrival of seasonable temperatures across the country until mid-June, thereby reducing the overall demand for our automotive and light truck radiator and air conditioning products. As a result, sales in our Automotive and Light Truck Business Group declined by 5.3% despite improvement in year-over-year air conditioning product sales due to the addition of a new customer. Heavy-Duty Aftermarket unit sales continued to grow with a 14.0% year-over-year improvement, driven by strong overall industrial and transportation activity. Early sales results for the third quarter indicate an improvement in basic demand levels."
Mr. Johnson continued, "During the quarter, softer customer demand in the radiator product line, along with competitors' attempts to reduce inventory levels, resulted in an intensification of the competitive pricing pressure we have experienced in recent years. While we continued to show improvements in year-over-year margins for the second quarter due to our continuing cost reduction initiatives, we expect that prices will continue to decline until the marketplace imbalance in inventories is resolved, and at least through year-end. In fact, radiator market pricing is the 'wild card' for our operating performance in the near term. When this condition is combined with the continued rise of certain raw material prices to record levels, higher interest rates and interest costs related to extended customer payment terms, and erratic buying by our larger customers, it is clear that our recent merger transaction and the synergy benefits it promises, was appropriate for our longer term success in this competitive marketplace."
Consolidated gross margin for the second quarter of 2005 was $11.4 million, or 19.4% of sales, versus a consolidated gross margin of $10.9 million, or 18.1% of sales, in the same period in 2004. These results reflect the factors mentioned above. The improvement in consolidated gross margin reflects the benefits of company-wide cost reduction actions, and pricing actions initiated in the Heavy Duty Group. These factors were somewhat offset by competitive pricing pressure within the Automotive and Light Truck Group, as well as rising commodity costs, which impacted all business segments.
Selling, general and administrative expenses totaled $10.9 million, or 18.4% of net sales, in the 2005 second quarter, compared to $10.2 million, or 16.9% of net sales, in the same period in 2004. The increase reflects higher costs related to Sarbanes-Oxley compliance measures, as well as costs incurred in anticipation of the Modine aftermarket merger, which was delayed until July 22, 2005.
The Company reported an operating loss from continuing operations for the second quarter of 2005 of $0.6 million, versus operating income from continuing operations of $0.8 million in the second quarter of 2004. Included in the Company's results for the second quarter of 2005 were $1.1 million in restructuring charges due to the relocation of inventory from Memphis, Tennessee to Southaven, Mississippi, associated with the previously announced opening of the Company's new distribution facility at that site. The restructuring charges also reflect expenses related to the Company's closure of its aluminum heater manufacturing facility in Buffalo, New York and the relocation of its production to its Nuevo Laredo, Mexico facility, as previously announced. Both of these actions, once fully implemented, are expected to generate annual operating cost savings substantially in excess of associated restructuring charges.
Inventory levels at June 30, 2005 were $84.8 million, compared to $71.2 million at December 31, 2004 and $70.7 million at June 30, 2004. In part, the increase in inventories in the quarter reflects safety stock to support preparation for plant consolidation activities as a result of the merger transaction, as well as to support the Company's relocation of its aluminum heater manufacturing operations, discussed above. However, the delayed start of the Automotive and Light Truck selling season until the last two weeks of the second quarter also pushed inventory levels higher. Production cuts have already been initiated to bring the inventory back into line by year-end on the pre-merger business. Beyond this, the Company continues to see opportunity to further reduce combined inventories as a result of the merger as it moves forward.
Primarily as a result of these higher inventory levels, cash flow used in operating activities for the first six months of 2005 was $18.6 million compared to a year ago when operations generated $3.2 million of cash flow. During the second half of 2005, the Company expects to generate cash flow from operations as a result of the planned inventory reduction efforts and seasonal increases in accounts receivable collections.
For the first six months of 2005, net sales were $107.3 million, a decrease of 2.3% from net sales of $109.8 million in the first six months of 2004.
Consolidated gross margin for the 2005 six-month period was $20.4 million, or 19.0% of net sales, compared to gross margin of $19.8 million, or 18.0% of net sales, a year ago. Selling, general and administrative expenses for the first six months of 2005 were $21.5 million, or 20.0% of net sales, compared to $19.6 million, or 17.9% of net sales, in the first six months of 2004. Restructuring expenses were $1.4 million for the first six months of 2005 compared to none a year ago.
The Company reported a loss from continuing operations of $4.4 million, or $0.62 per basic and diluted share, in the first half of 2005. In the first half of 2004, the Company reported a loss from continuing operations of $1.6 million, or $0.22 per basic and diluted share.
The Company reported net income for the first half of 2005 of $0.4 million, or $0.05 per basic and diluted share, which included income from discontinued operation of $0.8 million, or $0.12 per basic and diluted share, and an after-tax gain on the sale of the Heavy Duty OEM business of $3.9 million, or $0.55 per basic and diluted share. In the first half of 2004, including income from discontinued operation of $1.7 million, or $0.24 per basic and diluted share, the Company reported net income of $0.2 million, or $0.02 per basic and diluted share.
Mr. Johnson concluded, "While we are mindful of the near term challenges we face, such as pricing pressure, rising commodity costs and the cutback in production levels as we align our inventory with customer demand, each of which will continue to put pressure on our margins, we are excited by the opportunities presented by the merger transaction and the synergies we anticipate as a result. Our original estimate of more than $20 million of synergies was conservative, and we now anticipate that it could exceed $30 million. As previously mentioned, it is critical to note that we have seen and will continue to see radiator price down activity, which could significantly impact the synergy opportunity. As can be seen from our recent public communications, we have moved ahead aggressively to achieve the anticipated synergies, having already announced a number of restructuring activities. In the coming months, we will remain focused on executing our integration strategy, which we believe will bring improved operating results and competitive positioning for 2006 and beyond."
Proliance International, Inc. is a leading manufacturer and distributor of aftermarket heat transfer and temperature control products for automotive and heavy-duty applications.
Proliance International, Inc.'s Strategic Corporate Values Are:
-- Being An Exemplary Corporate Citizen
-- Employing Exceptional People
-- Dedication To World-Class Quality Standards
-- Market Leadership Through Superior Customer Service
-- Commitment to Exceptional Financial Performance
FORWARD-LOOKING STATEMENTS
Statements included in this news release, which are not historical in nature, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements relating to the future financial performance of the Company are subject to business conditions and growth in the general economy and automotive and truck business, the impact of competitive products and pricing, changes in customer product mix, failure to obtain new customers or retain old customers or changes in the financial stability of customers, changes in the cost of raw materials, components or finished products and changes in interest rates. Such statements are based upon the current beliefs and expectations of Proliance management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. When used in this press release the terms "anticipate," "believe," "estimate," "expect," "may," "objective," "plan," "possible," "potential," "project," "will" and similar expressions identify forward-looking statements.
In addition, the following factors relating to the merger with the Modine Manufacturing Company aftermarket business, among others, could cause actual results to differ from those set forth in the forward-looking statements: (1) the risk that the businesses will not be integrated successfully; (2) the risk that the cost savings and any revenue synergies from the transaction may not be fully realized or may take longer to realize than expected; (3) disruption from the transaction making it more difficult to maintain relationships with clients, employees or suppliers; (4) the transaction may involve unexpected costs; (5) increased competition and its effect on pricing, spending, third-party relationships and revenues; (6) the risk of new and changing regulation in the U.S. and internationally; (7) the possibility that Proliance's historical businesses may suffer as a result of the transaction and (8) other uncertainties and risks beyond the control of Proliance. Additional factors that could cause Proliance's results to differ materially from those described in the forward-looking statements can be found in the Annual Report on Form 10-K of Proliance (formerly known as Transpro, Inc.), in the Quarterly Reports on Forms 10-Q of Proliance, and Proliance's other filings with the SEC. The forward-looking statements contained in this press release are made as of the date hereof, and we do not undertake any obligation to update any forward-looking statements, whether as a result of future events, new information or otherwise.
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net sales $ 58,962 $ 60,400 $ 107,270 $ 109,836
Cost of sales 47,537 49,460 86,878 90,079
---------- ---------- ---------- ----------
Gross margin 11,425 10,940 20,392 19,757
Selling, general and
administrative expenses 10,878 10,188 21,453 19,612
Restructuring and other
special charges 1,105 -- 1,367 --
---------- ---------- ---------- ----------
Operating (loss) income
from continuing
operations (558) 752 (2,428) 145
Interest expense 1,892 880 3,349 1,719
---------- ---------- ---------- ----------
Loss from continuing
operations before taxes (2,450) (128) (5,777) (1,574)
Income tax (benefit)
provision (359) 33 (1,414) (29)
---------- ---------- ---------- ----------
Loss from continuing
operations (2,091) (161) (4,363) (1,545)
Income from discontinued
operation, net of tax -- 964 848 1,705
Gain on sale of
discontinued operation,
net of tax -- -- 3,899 --
---------- ---------- ---------- ----------
Net (loss) income $ (2,091) $ 803 $ 384 $ 160
========== ========== ========== ==========
Shares outstanding:
Basic 7,107 7,106 7,107 7,106
========== ========== ========== ==========
Diluted 7,107 7,106 7,107 7,106
========== ========== ========== ==========
Basic (loss) income per
share:
Continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
Discontinued operation -- $ 0.14 $ 0.12 $ 0.24
Gain on sale of
discontinued
operation -- -- $ 0.55 --
---------- ---------- ---------- ----------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
========== ========== ========== ==========
Diluted (loss) income per
share:
Continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
Discontinued operation -- $ 0.14 $ 0.12 $ 0.24
Gain on sale of
discontinued
operation -- -- $ 0.55 --
---------- ---------- ---------- ----------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
========== ========== ========== ==========
Note: Prior year amounts have been reclassified to reflect the Heavy
Duty OEM business as a discontinued operation.
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 30, December 31,
2005 2004
------------ ------------
Accounts receivable, net $ 42,887 $ 34,429
Inventories, net 84,770 71,211
Other current assets 2,595 4,495
Discontinued operation current assets -- 11,403
Net property, plant and equipment 18,844 16,135
Other assets 6,247 5,621
Discontinued operation non-current assets -- 6,565
------------ ------------
Total assets $ 155,343 $ 149,859
============ ============
Accounts payable $ 35,591 $ 26,647
Accrued liabilities 15,466 17,453
Discontinued operation current liabilities -- 8,176
Total debt 50,737 44,024
Other long-term liabilities 6,351 6,724
Stockholders' equity 47,198 46,835
------------ ------------
Total liabilities and stockholders' equity $ 155,343 $ 149,859
============ ============
Note: December 31, 2004 amounts reflect reclassification of the Heavy
Duty OEM business as a discontinued operation.
PROLIANCE INTERNATIONAL, INC.
SUPPLEMENTARY INFORMATION
(in thousands)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
SEGMENT DATA
------------
Net sales:
Automotive and light truck $ 48,572 $ 51,284 $ 88,976 $ 93,363
Heavy duty 10,390 9,116 18,294 16,473
---------- ---------- ---------- ----------
Total net sales $ 58,962 $ 60,400 $ 107,270 $ 109,836
========== ========== ========== ==========
Operating (loss) income
from continuing
operations:
Automotive and light truck $ 2,527 $ 2,169 $ 3,505 $ 3,986
Restructuring and other
special charges (1,105) -- (1,367) --
---------- ---------- ---------- ----------
Automotive and light
truck total 1,422 2,169 2,138 3,986
---------- ---------- ---------- ----------
Heavy duty 351 73 93 (704)
Restructuring and other
special charges -- -- -- --
---------- ---------- ---------- ----------
Heavy duty total 351 73 93 (704)
---------- ---------- ---------- ----------
Corporate expenses (2,331) (1,490) (4,659) (3,137)
---------- ---------- ---------- ----------
Total operating (loss)
income from continuing
operations $ (558) $ 752 $ (2,428) $ 145
========== ========== ========== ==========
CAPITAL EXPENDITURES, NET $ 1,219 $ 1,815 $ 3,754 $ 2,533
------------------------- ========== ========== ========== ==========
Note: Prior year amounts have been reclassified to reflect the Heavy
Duty OEM business as a discontinued operation.